After banks and credit unions received funding from a federal program designed to shore up the capital of institutions that serve under-resourced communities, they sharply increased their lending, according to new research findings.
The research by the fintech company CNote looked at the impact of the Emergency Capital Investment Program, which Congress enacted in 2021. The program provided close to $9 billion in capital to community development financial institutions and minority depository institutions across the country.
Loans by a sample of the program's beneficiaries climbed by 35% between 2021 and last year, according to the firm's analysis. In each of the previous two years, their loans rose by 10%.
The program was "a massive move in the right direction to unlock new capital sources" for lenders focused on serving lower-income communities, CNote CEO Catherine Berman said in an interview.
"When you enable, empower and strengthen on-the-ground banks and credit unions, what you see is more relationships created and more access to financial opportunities," Berman said.
CNote, which runs a platform for investors to provide working capital for CDFIs and MDIs, studied the performance of 21 financial institutions in its network that received funding from ECIP.
The research covered 13% of the financial institutions that participated in the Treasury Department
In addition to the new lending, deposits at ECIP participants increased by 14%, according to CNote. Employee headcount went up by 8%, while branch locations grew by 3%.
One lender that says it has benefited from the program is Alternatives Federal Credit Union in Ithaca, New York.
Funding from ECIP has taken the credit union's "business of impact and mission-driven lending" to new levels, according to Bea Nellenback, its development director.
The credit union is expanding its staff and services, placing it "years ahead of what would have been feasible without these funds," Nellenback said in an email.
Dominik Mjartan, the CEO of Optus Bank, said that ECIP has allowed the Columbia, South Carolina-based minority depository institution to "lean into some of these underestimated communities that have a high potential to grow and benefit, even in today's economy."
"When there is a downturn in the economy, CDFIs and MDIs are first responders," Mjartan said in an interview. "ECIP capital is allowing us to lean in when many banks are pulling back."
Some 204 banks, credit unions and savings and loan holding companies applied for ECIP funds, and their requests exceeded the program's allotment by $4.5 billion.
Now that many MDIs and CDFIs have received capital infusions from the program, they are turning their attention to the need for more deposits.
Robert James, the CEO of Carver Financial, said in an interview that deploying the new capital to expand lending opportunities will be difficult without also attracting new deposits.
"From a capital perspective, these institutions are stronger than they have ever been," said James, who chairs the National Bankers Association, a trade group for MDIs. "Now it's time for patient deposits."
At an event in New York hosted by JPMorgan Chase on Thursday, community finance executives said that many MDIs must turn to corporations and nonprofit organizations for deposit funding, since those depositors are sometimes less concerned about the rates they earn on their money.
In a high interest-rate environment, raising deposit prices to compete with commercial banks "puts too much pressure" on the net interest margin of many minority depository institutions, said James Sills, the CEO of M&F Bank, a minority depository institution based in Durham, North Carolina.
"But there's a limited sphere of corporations that are not looking for the highest yield in the marketplace," Sills said. "So we have to do a better job of telling our story, but also telling them the benefit of their deposit, and what it's doing for the overall communities that we serve."
JPMorgan held its event Thursday at the same time as a roundtable discussion in Washington that
Executives from Citigroup, Wells Fargo, Bank of America and KeyCorp took part in the event on Capitol Hill, where officials said that the Economic Opportunity Coalition has met its goal of securing $1 billion of committed deposits for MDIs and CDFIs.
JPMorgan is not a member of the coalition, a bank spokesperson said in an email. But the bank is "confident that our approach to supporting MDIs is helping them meet their long-term goals," the spokesperson said.
JPMorgan works with 16 MDIs to provide access to business opportunities, investors, and training and expertise, the spokesperson said.
In 2021, the bank announced investments and commitments to MDIs and CDFIs exceeding $100 million and launched the Empowering Change program, a revenue-sharing partnership that allows participating MDIs and CDFIs to offer JPMorgan's money-market products to their clients.
